US-based Lone Star is the leading candidate to buy Novo Banco, the bank carved out of collapsed Banco Espirito Santo, Portugal's central bank said in a statement.

Dallas-based Lone Star was among the biggest and earliest buyers of distressed Irish banking assets after the crash. It amassed a portfolio of Irish loans with a face value of about €5bn - a mix of commercial property, business and personal debt.

Lone Star also picked up an Irish banking licence in 2014, part of the deal when it bought subprime lender Start Mortgages from Investec. However, despite widespread speculation it has so far not launched as an active lender here.

In Portugal, the central bank now plans to hold further talks with Lone Star after selecting it ahead of other prospective purchasers including China's Minsheng Financial Holding and US rival funds Apollo and Centerbridge.

Portugal had hoped to decide on the sale of Novo Banco by the end of last year, ahead of a final August 2017 deadline for the sale.

"At the current moment of the negotiation, the potential proposal by Lone Star is the one that goes the furthest," in ensuring stability of the financial system and confidence in Novo Banco, the central bank said in a statement. But the central bank added that Lone Star set conditions in its offer that could have an impact on public accounts, which it would seek to "minimise or remove in the deeper negotiations that start now."

The finance ministry welcomed the next stage of the negotiations aiming to overcome those conditions.

Finance Minister Mario Centeno said on Wednesday that Portugal was not ready to complete the sale of Novo Banco, adding that the government was not prepared to present a state guarantee for the potential buyer.

Portugal salvaged Novo Banco, or the 'good bank' in a €4.9bn rescue of BES in 2014, after the lender collapsed under the weight of debts of its founding family. An attempt to sell Novo Banco in 2015 failed because the bids were considered too low. (Additional reporting Reuters)